Crude oil prices surge over $1 due to concerns about escalating tensions in the Middle East.

Rising Oil Prices Amidst Middle East Conflict Concerns

Oil Prices Surge on Reports of U.S. Military Strike

Oil prices experienced a significant boost of over $1 on Friday following reports of a U.S. military strike on Iranian targets in Syria. This development has raised concerns about the Israel-Hamas conflict expanding, potentially impacting oil supply from the crucial Middle East region.

Geopolitical Tensions Drive Oil Futures Higher

The futures for December witnessed a surge of $1.32, or 1.5%, reaching $89.25 per barrel by 0638 GMT. Similarly, the U.S. West Texas Intermediate contract for December climbed $1.29, or 1.6%, to $84.50 per barrel. These price increases were primarily driven by the strikes on two facilities in eastern Syria, which were used by Iran’s Islamic Revolutionary Guard Corps and its affiliated groups. The Pentagon confirmed that these strikes were in response to recent attacks on U.S. troops in Iraq and Syria. It is worth noting that these attacks have intensified since the start of the Israel-Hamas conflict on October 7.

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Potential Impact on Supply Chain

While the strike did not directly affect the oil supply, it has raised concerns about the possibility of the Israel-Hamas conflict spreading and disrupting the supply from major crude producer Iran, which supports Hamas. A broader conflict could also negatively impact shipments from Saudi Arabia, the world’s largest oil exporter, as well as other significant producers in the Gulf region.

Limited Disruption to Oil Supply

Both Brent and WTI are on track to record their first weekly drop in three weeks as the initial fears and geopolitical premium stemming from the conflict have subsided. It is important to note that there has been no significant disruption to oil supply outside the immediate region of the fighting. As a result, traders find it challenging to determine the value of geopolitics when there has been no substantial supply disruption beyond the Levant region.

Uncertain Trajectory of the Crisis

Given the ongoing conflict, it remains incredibly difficult to predict the trajectory of the current crisis. The redlines that could potentially bring more players into the battlefield remain largely indiscernible. Analysts at RBC Capital emphasize the complexity of the situation, stating that even the most knowledgeable regional observers struggle to make high-confidence predictions.

Price Forecasts and Market Tightening

Goldman Sachs analysts maintain their first-quarter 2024 Brent crude price forecast at $95 per barrel. However, they note that lower Iranian exports may cause baseline prices to rise by 5%. In the less likely scenario of a trade interruption through the Strait of Hormuz, where 17% of global oil production transits, prices could surge by as much as 20%. Additionally, voluntary supply cuts by Saudi Arabia and Russia, in effect until the end of the year, are contributing to global market tightening and supporting prices.

Amidst the tension in the Middle East, the oil market experiences volatility as geopolitical factors continue to play a significant role. Traders and analysts closely monitor the situation for any potential disruptions in the global oil supply chain.

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